Vibrant Seattle Economy Spurs Demand for Affordable Housing
By Caitlin Jones & A. J. Johnson
7 min read
A GROWING POPULATION, expanding job market, and rising home values make Seattle,WA nicknamed the Emerald City after the many lush evergreen trees in the area, a true jewel of a locale for affordable and market-rate multifamily housing.
The strong economy is expected to continue for the foreseeable future, according to Marcus & Millichap’s Third Quarter 2007 Apartment Research Market Update. “Employers remain active, and job growth has been widespread across all sectors,” says the report. “The metro’s technology giants are expanding steadily, while increased port activity is stimulating job growth in the trade, transportation and utilities sector.
“While much of the country is experiencing a prolonged housing slump,” the report continues, “Seattle’s home prices have remained resilient due, in large part, to a rapidly growing household base. Given the metro’s healthy demand drivers, builders are actively bringing new apartment units to the Seattle metro, but elevated development costs should prevent overbuilding.”
Seattle, the largest city in the Pacific Northwest, is the hub of the Puget Sound region that also includes the Washington State cities of Tacoma, Bellevue, and Everett. The Seattle metro area consists of three counties: King (in which Seattle is located); Snohomish (Bellevue); Pierce (city of Tacoma).
According to the U.S. Census Bureau, the city of Seattle had an estimated population of 578,700 in 2006, an all-time high up from 563,374 in 2000.
Employment Base,Trends
Leading local employment categories include: manufacturing and maritime; biotechnology; information and communications technology; health care; smart energy; sustainable building; film; and music.
Seattle is home to such Fortune 500 corporations asAmazon.com,Washington Mutual, Nordstrom, Starbucks, and Safeco. Other Puget Sound-based corporations are Microsoft, Costco, Nintendo of America, McCaw Cellular, and Weyerhaeuser. Boeing still maintains a major local presence even after moving its headquarters to Chicago.
Columbus, OH-based RED CAPITAL Research said 42,500 new jobs were added to Seattle’s economy in 2007. It forecasts job growth to soften to 31,000 additional jobs in 2008.
The HUD area median income in Fiscal Year 2008 for a four-person household in the Seattle- Bellevue WA metro area was $81,400, up from $75,600 the prior year.
Rents, Vacancies
Reis, Inc., a real estate data vendor, reports that average annual effective rents for all multifamily units grew by 7.7 % in the third quarter of 2007 from a year earlier, while effective monthly asking rents during the same period rose by 7.4%, to $919.
According to RED CAPITAL’s October 2007 report, Seattle’s apartment sector — already tight — grew tighter in the second quarter of 2007. The overall multifamily rental occupancy rate rose by 0.5% from the previous quarter, to 95.5%.
Reis said 829 multifamily units were completed in third quarter of 2007, during which the multifamily vacancy rate fell by 0.10%, to 4.4%. According to Reis, this suggested absorption of 1,050 total units during the quarter. Reis, however, forecast the vacancy rate to rise to 5.1% in the fourth quarter of 2007, and to 5.3% in 2008.
HUD FY 2008 Fair Market Rents for the Seattle-Bellevue area are: studios, $623; one-bedroom, $710; two-bedroom, $854; threebedroom, $1,207; and four-bedroom, $1,474.
Appraiser John Campbell, of PGP Valuation, Inc., Seattle, explained the reasons for the vibrancy of the Seattle area. “No. 1 is our location — near the water, near the mountains, right in the middle of great recreation activities,” he said. “We’re a very desirable area with a highly educated population. There are lots of high-tech jobs here with Boeing and Microsoft being the big drivers in the area.”
Campbell added that because Seattle is surrounded by water, land is at a premium.
Affordable Housing Picture
“Seattle continues to be an active market for affordable housing,” said Chuck Weinstock, Washington Mutual’s vice president and community lending manager for Washington State. “We predict the trends in place for the last five years will continue into the foreseeable future.”
There is “horrendous” competition for low-income housing tax credits in the Seattle area, according to Sharon Lee, executive director of the Seattle Low Income Housing Institute. Lee said there is a “big backlog” of projects waiting for housing credits due to the enormous competition for a limited supply of credits. “A major reason,” she explained, “is that 9% tax credit allocations for King County are capped at 40% of the state’s allocation. Other areas in Washington State do not face such intense competition.”
Lee added that “we have more established and experienced nonprofits operating in Seattle and we also have the Seattle Housing Levy, which provides a dedicated funding source from tax revenues.”
A major tax credit initiative in Seattle is housing for the homeless. The state of Washington has made major commitment to finding housing for the homeless, and this category has become an ever increasing source for set-asides, according to Campbell. The reason is the 35 extra tax credit points developers can get for projects serving the homeless. In 2005, there were 89 new units for the homeless; in 2006, 206 units; and, in 2007, 282 units.
According to Bob Peterson, low-income housing tax credit program manager for the Washington State Housing Finance Commission, housing for the homeless in Seattle has taken priority over housing for families, the elderly, and the disabled. “Developers are jumping on the homeless housing bandwagon because of the tight allocations and the fact that they can get maximum credit for new deals,” he said.
Other Housing Trends
There are other trends in affordable housing in the Seattle area.
First is development of affordable housing in Downtown Seattle, where most of the city’s homeless residents live.
According to Lee, Seattle has traditionally had a large stock of single-room occupancy (SRO) units in Downtown. “There has been a very strong preservation effort to make sure we don’t lose affordable housing Downtown,” she noted.
Another trend has been major affordable housing initiatives south of the city in submarkets that include Auburn, Kent, Renton, Federal Way,White Center, and Tukwila. New development in these submarkets has focused on housing for families and the elderly.
A third trend is the development of a substantial number of HUD HOPE VI projects in the Seattle area — the revitalization and transformation of old, distressed public housing projects into mixed-income residential communities featuring market-rate and affordable housing units.
Campbell foresees potential increased demand for the limited affordable housing stock in Seattle due to condo conversions and rising single-family foreclosures.
“We’ve had a high number of condo conversions in our market over the last couple of years,” he said, including a number of Downtown properties that had been older, more affordable properties.
